Fairer Distribution of Common Resources: the pros and cons of carbon trading

'A common price for carbon' has become the soundbite of the forward-looking 'green' politician. It pleases everyone, not least business, which can plan ahead by looking at the carbon 'market'. But is it the best way to proceed?

Maybe tying our economy to ecological resources and moving away from taxation is an option we shouldn't dismiss. James Robertson, an independent economist and author, discusses the pros and cons of carbon trading.

Contraction and Convergence

Contraction and Convergence (C&C) has been around for a while. I certainly didn't invent it, but already in 1983 I was able to report (The Sane Alternative, page 41) that “the SHE (sane, humane, ecological) path of development will lead the peoples of the world’s rich and poor countries to converge around an adequate and sustainable level of material consumption" — in contrast to the HE scenario that the richest countries would continue to lead the rest along a "hyperexpansionist" path. The need for C&C is more obvious now. The question is how to implement it? By rationing particular resources, or a more general reconstruction of taxation and public spending?

Rationing schemes

A resource in the spotlight today is the capacity of the environment to absorb carbon emissions in the context of climate change. Global and national schemes to ration them have been put forward. The global scheme developed by Aubrey Meyer and actually called Contraction and Convergence involves reaching international agreement on:

1) the overall limit to the sustainable quantity of CO2 in the atmosphere;

2) the date by which current global emissions should fall to that target;

3) the year-by-year allocation of permits to countries to emit CO2 to achieve that global target;

4) the principle that all countries should then be entitled to an equal per capita level of CO2 emissions.

Countries needing more than their allocated limit would be able to buy permits from those which do not need all theirs. David Fleming has developed a comparable national scheme to reduce CO2 emissions and distribute oil, gas and electric power fairly during supply shortages.

1) Every adult would be given Tradable Energy Quotas (TEQs) of an equal number of units, whereas Industry and Government would have to bid to buy units at a weekly Tender.

2) To start with, a full year's supply of units would be issued. Then every week as units were used, the number in circulation would be topped up with a further week's supply.

3) Units could be traded, between those who needed less and those who needed more than the allocation.

4) When you bought energy, e.g. electricity for your household, units would be deducted automatically from your TEQ.

5) The total number of units in circulation would be decided by an independent Energy Policy Committee in a TEQs Budget, looking 20 years ahead. The number would go down week-by-week, step-bystep.

6) The Government would itself be bound by the scheme. It would learn to live within it, and how to help the rest of us to do so too.

Rationing schemes: problems

Those schemes are the outcome of dedicated skilled work. On paper they are logical, clear and impressive. But following up the 1997 Kyoto Protocol has been a hard grind, and the European Union Greenhouse Gas Emissions Trading Scheme, which began operating under it only in January 2005, is already under fire. The heavy corporate carbon emitters to whom National Allocation Plans give big quotas will easily reduce emissions and have surplus permits to sell; polluter will be paid instead of "polluter pays"

Some of the practical problems of rationing and trading schemes are:

1) The target for the total sustainable use of a particular resource, and the date for achieving it, will be disputed.

2) So will the question of who the scheme should include.

3) So will decisions about who gets what rations: should more important people (like leaders in government and business, and workers in public services) get higher rations than other people? — ahuge potential source of dispute, corruption and mistrust.

4) What enforcing system will ensure that rations are not exceeded and trading them is free from fraud?

5) Will similar rationing schemes proliferate for other resources?

6) Will letting the rich buy surpluses be accepted as fair?

A preferable alternative?

Will the principle of C&C be implemented more effectively and comprehensively by shifts in tax and public spending within nations, and by comparable new procedures for global taxing and spending?Friends of the Earth have put forward immediate proposalsv. For the longer term we need to shift sources of public revenue:

• away from taxing the rewards (incomes, profits, value added, etc.) people and businesses get for contributing to the common wealth

• to making people and businesses pay for the value they take from common resources (such as the value of land, the value of energy in its unextracted state, and the value from creating the publicmoney supply)

and to shift public spending:

• away from perverse subsidies for unsustainable activities and projects, and from payments to businesses for providing public services

• to a Citizen's Income, reflecting every citizen's right to a share in the value of common resources.

At the global level, the need to develop the collection of public revenue and management of public spending (e.g. on UN programmes) is recognised as urgent. The value of global common resources should be treated as global revenue, not only to support global public spending programmes but also the distribution between nations of converging per capita shares in their value, as a kind of global citizen's incomevi.

This might both be a wider, more fundamental change than rationing, and also easier for people to understand and accept.

Conclusion

People who care for the world's future should consider whether these alternative policies are compatible. Should we support both, or one of them rather than the other?

James Robertson is an independent economist and the author of The New Economics of Sustainable Development and other books, including Monetary Reform – Making it Happen!, with John Bunzl. His work is available at www.jamesrobertson.com.